QUESTION 2

Color Sofa provides upholstery services in Bandar Kijang. It uses a job order costing system to accept orders from the customers. The manufacturing overhead cost is absorbed based on direct labour hour. The budgeted manufacturing overhead cost for the month of January 2021 is RM53,500. Management expects a total of 10,700 direct labour hours will be used.

a)Discuss why companies use budgeted overhead costs rather than actual costs to compute predetermined overhead rate. (4 marks)

b)Calculate the predetermined overhead rate for Color Sofa for the month of January 2021. (3 marks)

c)Prepare journal entries to record the following transactions incurred during January 2021:

Month Particular

Jan 3 Purchase 150 metres of direct material from Bibah Textile on credit for RM2,111.

Jan 15 120 metres of direct material was requested from the store for production. It was bought for RM8.60 per metre.

Jan 18 The upholstery section has purchased 180 metres of indirect material which cost RM11.10 per metre from Ali Trading by cash.

Jan 21 Direct labour cost paid for the month of January amounted to RM1,700.

Jan 25 The depreciation cost for the delivery van for the month of January is RM890.

Jan 29 For the month of January, a total of 6,300 direct labour hours have been utilised.

(18 marks)

d)At the end of January, the actual result of the company's operation indicates that the actual manufacturing overhead cost is RM50,000. Calculate and determine whether the total overhead cost is under or over absorbed. Explain. (5 marks)